Information for Departments
When a department decides to hire an NRA who is already present in the U.S., all routine "new hire" paperwork should be completed with no delay. During the on-boarding process, when a new employee who is not a US citizen or a lawful permanent resident completes the I-9 and chooses "alien authorized to work," that becomes their citizenship status in HRPD (PeopleSoft) and locks the W-4 data to the IRS requirement of "single, 0." If the employee is eligible for different allowances, the Nonresident Tax Office will make such a determination. There is no requirement to have a Social Security Number (SSN) at the time of hire for a newly-arrived NRA. (HR-105 makes an exception for newly arrived nonresident aliens.)
Departmental Payments to NRAs Through Accounting
Accounting will not process any payments for nonresident aliens except those that are for a reimbursement of business-related expenses in accordance with the "accountable plan." All payments made to nonresident aliens (other than wages and scholarships paid through Financial Aid) must go through the Nonresident Alien Taxation Office. (See procedures for honoraria, scholarships, royalties, and prize recipients below.)
In general, any time a department wishes to make a payment to an individual who is not a U.S. citizen, or to a business entity that gives any indication of being a foreign entity, the best practice is to contact the NRA Tax Office as early as possible. The tax information we provide may be useful in drafting business agreements and contracts, and is likely necessary to making the payment.
Honorarium Payment Procedures
Before arrival of the NRA, departments should contact the NRA Tax Office by email. We will review the payment pursuant to IRS regulations, and will advise the department (and the payee) as to tax implications and the availability of tax treaty benefits. There is a presumption that a payment to a nonresident will require a withholding tax of 30%, and in many cases, this withholding will apply to an honorarium. (The department may effectively cover the tax by grossing payment: [desired net payment/.7] = grossed-up payment amount.)
Honorarium payments may be made only to a nonresident alien who is in an immigration status that legally allows such payments. These statuses generally include persons in B-1, B-2, WB, and WT status.
For most financial aid, students receive payment via the Financial Aid, and nonresident tax analysis and reporting occurs without involvement of any department.
Non-qualified scholarships are taxable income to both nonresidents and U.S. students. A taxable scholarship is any amount greater than the semester academic fees or amounts provided directly to the student in the form of cash or a check. Non-qualified scholarships made to NRA students who have been reviewed by the Nonresident Tax Office will generally be taxed at a 14%, unless a tax treaty exemption applies. If there is no tax assessment on file, withholding may be as high as 30%.
In some situations, departments pay students to travel to an academic conference. This may be referred to as a "travel scholarship" and is treated the same as other scholarship payments. In this case, the department should contact our office for a review of the payment and any tax treaty benefit available to the student.
Prizes and Awards
Prizes and awards are always considered U.S. source income for NRAs, and withholding of U.S. taxes is required at 30% unless a tax treaty applies.
Recipients can contact the NRA Tax Office by e-mail from anywhere in the world, and will subsequently submit copies of passport and identification documents..
The Nonresident Tax Office will work directly with the department to complete payment forms.
Royalties are frequently paid without the payee ever traveling to the U.S. This category of payment also includes most subscription and license fees paid to foreign corporations or partnerships.
Royalty payments are frequently covered by tax treaty, and the payee need not have a U.S. tax ID number in order to claim the treaty benefit. As with other categories of payment, the NRA Tax Office will work directly with the department to obtain the necessary information and process payment.